The forthcoming consultative referendum on the Association agreement (AA) between the EU and Ukraine will pose for citizens a complex and difficult question which even experts will find difficult to address. To use the referendum as a true instrument of democracy, it should not be taken as a proxy for European integration questions, that is, as an opportunity for Dutch voters to express how they feel about the EU in general or Eastern Europe or Ukraine more specifically. If the referendum is to have any significance for decision makers, citizens should be informed about the treaty that they are being asked to vote on. The Netherlands needs to ratify the agreement so that it can come into force.

In the following paragraphs we aim to contribute to an informed campaign by highlighting some basic features of the AA agreement and discussing its potential future implications.

The background

Some context and background how the AA agreement came about are important here: negotiations between the EU and Ukraine on AA started in 2007 and continued until 2011. In 2013, at the European Council meeting in Vilnius, the then President Viktor Yanukovich refused to sign the agreement, which triggered massive protests from Ukrainian citizens in Kiev, that later became known as the ‘Euromaidan’. After Yanukovich fled Ukraine and a new government was elected in Ukraine, the AA was ultimately signed in June 2014.

The AA itself is a mixed agreement containing provisions for political association and economic integration. It is a far reaching agreement in terms of the legislative harmonization and reform expected of Ukraine. Critically, despite Ukraine’s long efforts to have its membership aspirations recognized, the agreement does not promise membership to Ukraine. In fact, the Agreement does not refer to any specific future goal for relations, leaving them open-ended.

As other agreements of a similar type, the Association agreement makes progress in relations conditional on the implementation of reforms by the Ukrainian government, parliament and institutions of governance in general. The EU commits to strict conditionality and monitoring of the obligations undertaken by Ukraine and has provided a system of benchmarks to facilitate monitoring of whether Ukraine has reached specific targets for reform. The most important joint institution the agreement creates is the Association Council, which would bring together EU and Ukrainian heads of government for meetings twice a year covering the implementation of the agreement.

Trade

One of the most important aspects of economic integration under the agreement is trade. Trade liberalization between the EU and Ukraine is envisaged as far reaching. In addition to tariffs, the agreement deals with non-tariff barriers and requires Ukraine to engage in extensive regulatory and standards harmonization, which is why it is said to give Ukraine access to the EU’s internal market. Accordingly, the trade part of the agreement is named Deep and Comprehensive Free Trade Area.

Economic integration, however, does not include freedom of movement of labour and access of Ukrainian workers to the EU. The Agreement stresses that in this field member states’ bilateral arrangements will continue to apply. Visa liberalization, a long-standing objective of Ukraine, is not provided but left open depending on the future fulfilment of strict conditions.

While waiting for member states to ratify the Agreement, the EU has been opening its markets to certain categories of Ukrainian goods. The Ukrainian market will also be open for EU goods, after ratification and more gradually, which is why we call this opening asymmetric. It is worth noting that EU exports to Ukraine are very small at the moment, at 0.9% of all EU exports, while for Ukraine the EU is the largest trade partner at 31% of total trade, followed by Russia at 27%.

The trade provisions of the agreement were meant to come into force already in 2014, very soon after signing, but Russian actions in the Crimea and its controversial objections against the agreement, led to an unprecedented postponement of the application of the DCFTA part, till December 2015. It is not likely that EU-Ukraine-Russia differences on the future of the Association agreement would be resolved by that date.

Modernization

Overall, this is a very complex agreement with multiple potential consequences, but the main onus of adjustment and change is on Ukraine. It is Ukraine that will have to implement a set of far-reaching reforms in standards, regulation, and above all good governance to benefit from the agreement. For Ukraine, the agreement is a programme for reform and modernization of its administration and democratic structures of governance. It is doubtful whether the Ukrainian authorities are able to engage in these far-reaching reforms at the moment, given the instability and conflict in Eastern Ukraine. If the EU member states (including the Netherlands) ratify the agreement, this will support the programme of reforms in Ukraine and ultimately benefit Ukrainian citizens by improving governance, implementation and welfare. Trade effects and effects on businesses may be more mixed depending on the ability of business to be competitive in the EU market.

Crucially, EU companies will no doubt enjoy a significant competitive advantage in the Ukrainian market. In the end, the overall effects of such a complex agreement and dynamics are hard to estimate with certainty at this point. In our view, they will lead to the modernization of the Ukrainian economy and administration. The trade effects on EU member states’ economies are likely to be limited at present. The main benefits will be in having a more stable, better governed neighbor, which will also decrease potential migration pressures on the EU.